Suppose the shares of Hector Financial are expected to pay a dividend of $10 next year....

Suppose the shares of Hector Financial are expected to pay a dividend of $10 next year. The annual growth rate is expected in the long term to be 2%. Investors require an 11% return on their investment in Hector Financial. What should be the price of this stock?

Select one:

a. $90.91

b. $92.73

c. $111.11

d. $113.33

Expert Solution

Ans c. $111.11

P0 =	Price of Share
D1 =	Current Dividend
Ke =	Cost of Equity
g =	growth rate

P0 =	D1 / (Ke - g)
P0 =	10 / (11%- 2%)
P0 =	111.11

jeff jeffy answered 3 years ago

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